May 19, 2005 (PLANSPONSOR.com) - A Washington,
DC-based research group has estimated that employers will
have to come up with another $114 billion for their retiree
health-care benefits because of litigation over possible age
discrimination problems.

The Employment Policy Foundation (EPF) calculated that
the much-discussed Erie County decision (See
UpFront: Erie Go
Again
) would considerably increase the current $650 billion
employer retiree health liabilities bill. The group made
the assertion in
a research report
released Thursday.

According to an EPF news release, the court rulings
about whether employers discriminated on the basis of age
in how they paid retiree health benefits will force
employers to either spend an average of $1,500 more for
each of the 8 million Medicare-eligible retirees or cut
spending on benefits for those retirees under age 65.

The EPF said current accounting rules require firms to
account for both current and future retiree health
liabilities on their balance sheet, making the total
balance sheet impact of increasing spending for
Medicare-eligible retirees $79 billion to $114 billion. The
lower estimate reflects the assumption that employers will
cap future premium contributions for both pre- and post-65
retirees, which nearly 50% of employers have already done,
the EPF said.

The Erie County court ruled that the problem came about
because most employers spend more for their younger
retirees to provide “bridge” benefits and that once a
retiree reaches age 65, the employer only provides health
coverage to supplement Medicare. The court ruled that these
unequal benefits discriminated against retirees who were
old enough to qualify for the government-run health
program.

In a controversial move, the Equal Employment
Opportunity Commission (EEOC) issued rules after the ruling
clarifying that the Age Discrimination in Employment Act
(ADEA) did not block employers who offer retiree health
benefits from providing enhanced bridge benefits to
non-Medicare-eligible retirees (See
EEOC Approves ‘Erie
County’ Exemption
). However, a Philadelphia federal judge blocked the rule
from going into effect in March after it was challenged by
the AARP (See
Federal Judge Tosses
EEOC Retiree Health Benefit Exemption
).

“The high cost of equalizing benefits may cause some
firms to eliminate retiree health coverage for future
retirees, which will substantially increase their future
out-of-pocket costs,” said Janemarie Mulvey, the
Foundation’s president and chief economist.